Exxon may have misled investors on climate costs, New York AG tells judge

Exxon Mobil Corp. signage is displayed on a monitor on the floor of the New York Stock Exchange (NYSE). ( Michael Nagle/Bloomberg.)

New York’s top cop told a judge that his investigation into Exxon Mobil Corp.’s public statements about climate change uncovered “significant evidence” the oil giant may have misled investors about how it calculates the impact of the Earth’s warming on its assets.

The probe revealed that Exxon for the past decade may not have been pricing in the future impact of greenhouse gas emissions as it claimed, telling concerned investors one thing and using “secret” numbers on the side, New York Attorney General Eric Schneiderman said in a court filing Friday.

“That evidence suggests not only that Exxon’s public statements about its risk management practices were false and misleading, but also that Exxon may still be in the midst of perpetrating an ongoing fraudulent scheme on investors and the public,” Schneiderman said.

If true, the allegations risk inflaming investors who this week backed a non-binding resolution urging the Irving, Texas-based company to consider whether it can prosper under strict greenhouse gas limits. While Exxon opposed the vote, it has accepted climate-change science and opposed President Donald Trump’s decision to pull the U.S. out of the 2015 Paris Climate Accord.

Alan Jeffers, an Exxon spokesman, didn’t immediately return a call for comment before regular business hours on Friday. A message left with the company’s media line wasn’t immediately returned.

Proxy Costs

The allegations center on Exxon’s claim that it applies so-called proxy costs to greenhouse gas emissions, which the company says “reasonably approximates the range of potential future government actions with respect to climate change,” according to the filing. Schneiderman’s alleged that Exxon regularly cites the proxy costs to “assure investors that none of Exxon’s projects or assets will be materially affected by future climate change-related regulations.”

That claim may be vastly exaggerated, Schneiderman said in his filing in New York state court.

“Exxon has identified only a single, anomalous instance in which a proxy cost was actually applied,” the attorney general said. “Exxon’s documents reveal a widespread lack of awareness among employees of the proxy cost policy, or how it should be applied.”

The use of proxy costs “may be a sham,” and Exxon also has “secret internal versions of proxy costs,” Schneiderman alleged. The company told an employee from its majority-owned Imperial Oil Ltd. not to apply it to its Canadian oil sands projects, according to the filing.

Exxon has refused to make the employee available to testify, “contending for the first time that it lacks control over its majority-owned subsidiary from which it has been producing documents for months,” he said.

The proxy costs match a dollar amount to projected tons of greenhouse gases by a certain future year, according to the filing. In one example outlined in court documents, Exxon told investors it applied proxy costs that reached $60 per ton of greenhouse gases by 2030, and $80 per ton by 2040 for projects in developed countries. But documents provided by Exxon under a subpoena show that lower dollar amounts were being used internally, according to the filing.

“It appears that this discrepancy was known at Exxon’s highest levels,” John Oleske, a senior enforcement lawyer for New York, said in another filing on Friday.

Schneiderman claims an Exxon climate change manager wrote in a 2010 email that publicly disclosed proxy cost figures were “more realistic” than those used internally. Tillerson wrote in an email in 2011 that he was “happy with the difference” because using a lower proxy cost was “conservative” from the perspective of investing in projects, such as carbon capture and storage, that allow Exxon to claim emissions reduction credits, according to the filing.

Exxon has repeatedly denied wrongdoing and claims the state probe was started in “bad faith” because the outcome had been predetermined based on ideological coordination with environmental groups and even former Vice President Al Gore, an outspoken opponent of climate change.

Schneiderman and his Massachusetts counterpart, Maura Healey, have been investigating since 2015 whether Exxon misled the public and investors by withholding information about how climate change could impact the company’s finances. Exxon sued to block their subpoenas for millions of pages of documents, while Republicans in Washington have sought to derail the investigations from Capitol Hill.

Exxon Can’t Find Up to a Year of Tillerson ‘Tracker’ Emails

Schneiderman also referenced the existence of a second Exxon alias email account that was discovered in the course of the investigation, months after he accused Exxon of failing to disclose former Chief Executive Officer Rex Tillerson’s secondary email account. He used the alias “Wayne Tracker” to discuss sensitive topics with the board.

The second alias account, which has the name “J.E. Gray,” was assigned to CEO Darren Woods, filings show, without revealing when or how this alias account was discovered.

Sworn testimony of Exxon’s lawyers suggested the company may have withheld the existence of the second alias accounts as a “test of whether the Attorney General’s office is reading the documents,” according to Schneiderman.

Schneiderman filed the additional material in support of his May 8 subpoena to Exxon. The case was transferred to Manhattan by a federal judge in Dallas who said it belonged in New York, effectively restarting the litigation from scratch. Schneiderman has used the opportunity to make fresh allegations.